Optimize cost structure – but how?

Dec 17, 2018 07:14 PMS-GE Newsroom

Internationalization is not a one-way street: the focus not only lies on the sales potential abroad, but also on optimizing procurement for the parent company in Switzerland. Optimizing procurement and cost structure can create competitive advantages for export-oriented Swiss companies. But what do you have to pay attention to?

Increase efficiency and save costs through optimized procurement

Optimizing procurement – an issue everywhere

For Swiss SMEs, the optimization of procurement was even at 67% in the years following the abolition of the minimum Swiss franc exchange rate against the Euro in 2015. Swiss companies are not the only ones to deal with internationalization as a two-way street. German SMEs are also becoming increasingly involved in purchasing on foreign markets: while in 2008 only just under half (47%) of companies active abroad imported goods or services, by 2017 this figure had risen to almost two thirds (64%).

The strong increase in import activities is an indication that more and more SMEs are exploiting efficiency potential in their value chains by opening up procurement markets abroad. For example, intermediaries can be dispensed with and costs can be saved through direct imports. Optimization potential results from digital access to new developments and falling transaction costs also in the service sector; in principle, all services that can be digitized can be “outsourced” today.

Optimizing cost structure as early as possible

This makes it all the more important to optimize your offers’ cost structures as early as possible before entering the first international markets. The manufacturing costs of Swiss products are naturally higher than in most other countries, not least due to the Swiss market’s lower economies of scale.

Desirable scaling and composite effects may not necessarily occur

Some suppliers hope to be able to reduce the manufacturing costs for their products in the medium term by increasing their sales volumes abroad in the future and thus allowing profitability to recover through growth. This can be a risky plan, as costs are also incurred if foreign market development requires more marketing efforts, time and costs than originally planned.

Initial recommendations for action

Examine and optimize the manufacturing costs of your products as far as possible before you enter the foreign market.

Address issues of goods flow and logistics sufficiently early. How does your product get to the customer, which physical distribution channels must be used for the goods? What are the costs? Are there relevant price differences between different distribution channels and logistics partners?

The following article contains information about how best to deal with regulatory and legal issues abroad. Read the article here.